Slippery Slope: As-repaired And The Appraiser's Assumption

[residentialguy]

I've struggled with making the report subject to repair without knowing how they are going to repair it, which can affect value. I had a sale where the deck had some unsafe boards that needed to be replaced. I made the deck subject to curing the safety hazard. I assumed a few bad decking boards would be replaced. I come back for a final and the safety hazard was cured all right, except instead of replacing 1/2 doz boards, he removed the entire deck! All my comps were adjusted for the decks. I was able to fudge my way out of it because it didn't really have a significant factor in value and the lender was cool with that and just notated the final. But what if that had more contributory value?

For example, we recently saw a thread on a bad foundation. OK, so you make it C4, subject to repair...but on repairing it, much of the other areas had to be re-done, thus ended up in a much higher condition and ultimately giving it a higher Market Value then your assumed C4 with repaired foundation. There is no protocol by FNMA to assume the depth of repair or for us to instruct the home owner on how it is to be repaired ...and I would think that an appraiser doing that is putting him/herself in a precarious position.

It's really not any different than new construction. We would never assume what the HO is going to build...we go off plans and specs. Should we not stop the appraisal process and find out exactly what all is going to be done to the property before we opine value on it??? Even on something simple like a back door having a safety hazard because of the drop to the grade level. The could cure it by screwing the door down so that it is permanently affixed...or they could put in a wood stairs...or concrete stoop, or add a deck, porch, etc. We can't tell them what to do and how do the appraiser assume how they will fix it. We can't tell them how to build. We can only make sure that the property is safe and sound.

I know most have just assumed, as I often have. But on further thought, I would rather not have a report out there that reflects an assumption and proved to be false. I would stop, get the plans and specs, then finish the report that reflects the subject as it is to be repaired. Last thing you want to do is get a call from the state board or summoned to court with claims that your report is mis-leading.

I would bump the fee of the final to incorporate any additional time or driving that might incur for this process.

 

[The Bob]

If the condition is something that involves a licensed professional I usually condition on "lender receipt of satisfactory inspection or repair by licensed professional".
Some things you can visually verify like peeling paint or some rotted boards, but if the HVAC isn't running or there are cracks in a foundation, that is beyond my SOW. Lenders should not be asking us to verify these types of things, but we have been doing it for so long they expect it. This can also eliminate the need for me to go back out to the property.

 

[TRESinc]

like most things in our work life... it depends. i have had minor items like finishing the drywall in a bathroom where i would have no problem making it subject-to the drywall being installed/completed. i've also had some pretty serious ones like foundation damage or holes in the roof. in those cases i call my client, explain what is going on and talk things over with them. i've also had new construction sales where when i go back for a final i find they have added a bath or in one case a 450sf addition. for things like the foundation or roof i feel comfortable, with my clients, that if they accepted the repairs that i could as well.

in cases where the repairs exceeded what i had called for i don't worry too much as my original report was based on the subject being completed with the specified items. for example if i called for a roof repair and they replaced the entire roof, gutters and downspouts i would not feel compelled to change the value because they did more than i called for. my report was still as of the effective date based on the assumption that the deficiency would be repaired. if they want to go above and beyond then that is their choice, but using my example above i did not call for gutters and downspouts so they would not change what i had reported originally.

 

[residentialguy]

Some things you can visually verify like peeling paint or some rotted boards

Well...not so much. You still need to stop and get the plans on how they're going to fix it. Are they going to repaint it...or are they going to put on new siding? I just showed you an example where the deck had some rotten boards on the deck. They cured it by removing the deck! Your appraisals shows it has a deck.


"There's paint peeling, so you need to repaint it"....really???

 

[Terrel L. Shields]

I've struggled with making the report subject to repair without knowing how they are going to repair it,

That becomes problematic USPAP wise if it seems unreasonable. Lots of threads about requiring the removing of second kitchens, or converting back duplex to SFR, or visa versa. These are likely not going to happen therefore I suspect are not USPAP kosher.

 

[residentialguy]

i've also had new construction sales where when i go back for a final i find they have added a bath or in one case a 450sf addition.

In that case, it's not your problem because they changed the plans to which your were to appraise.

in cases where the repairs exceeded what i had called for i don't worry too much as my original report was based on the subject being completed with the specified items

The appraiser is just a messenger that reports a problem that must be repaired....they have no authority to tell them how to repair it.

 

[ucbruin]

I've struggled with making the report subject to repair without knowing how they are going to repair it, which can affect value. I had a sale where the deck had some unsafe boards that needed to be replaced. I made the deck subject to curing the safety hazard. I assumed a few bad decking boards would be replaced. I come back for a final and the safety hazard was cured all right, except instead of replacing 1/2 doz boards, he removed the entire deck! All my comps were adjusted for the decks. I was able to fudge my way out of it because it didn't really have a significant factor in value and the lender was cool with that and just notated the final. But what if that had more contributory value?

For example, we recently saw a thread on a bad foundation. OK, so you make it C4, subject to repair...but on repairing it, much of the other areas had to be re-done, thus ended up in a much higher condition and ultimately giving it a higher Market Value then your assumed C4 with repaired foundation. There is no protocol by FNMA to assume the depth of repair or for us to instruct the home owner on how it is to be repaired ...and I would think that an appraiser doing that is putting him/herself in a precarious position.

It's really not any different than new construction. We would never assume what the HO is going to build...we go off plans and specs. Should we not stop the appraisal process and find out exactly what all is going to be done to the property before we opine value on it??? Even on something simple like a back door having a safety hazard because of the drop to the grade level. The could cure it by screwing the door down so that it is permanently affixed...or they could put in a wood stairs...or concrete stoop, or add a deck, porch, etc. We can't tell them what to do and how do the appraiser assume how they will fix it. We can't tell them how to build. We can only make sure that the property is safe and sound.

I know most have just assumed, as I often have. But on further thought, I would rather not have a report out there that reflects an assumption and proved to be false. I would stop, get the plans and specs, then finish the report that reflects the subject as it is to be repaired. Last thing you want to do is get a call from the state board or summoned to court with claims that your report is mis-leading.

I would bump the fee of the final to incorporate any additional time or driving that might incur for this process.

"I was able to fudge my way out of it because it didn't really have a significant factor in value and the lender was cool with that and just notated the final."

Sorry to take this thread on a tangent...
But WTF???!!!!
I'm going to start making $2,000/fireplace adjustments again...!!!

 

[hastalavista]

like most things in our work life... it depends.

I agree.

I think for most of the humdrum items that we require repairs for, we are not going to have much issue.
A broken window? Subject to repair/replacement using an HC.
A broken stairway? Subject to repair/replacement using an HC.
Etc., etc.

On more substantial items like foundation damage, I'd be inclined to contact my client, identify the problem, and inform them that the report will be made subject-to repair/replacement of that particular issue. If the issue was so significant that I felt I could not identify what exactly needs to be done, then I'd call the client and tell them they need to provide me with an inspection report, estimate, etc., that identifies the repairs needed. Or, I use an HC for the items I can determine and an EA for other inspections that are prudent to obtain. This doesn't happen that often.

I think you are asking about a situation where the appraiser has identified an issue and has made it subject-to a repair. But, the homeowner went further than repairing that specific item, or the type of repair they did affected the value (either positively or negatively). In this case, the HC was not completed as identified in the report. They did more (either by choice or necessity) than the appraiser assumed would be done.

Again, if we are faced with a situation where we think the repair or required alteration is going to be so significant or cannot be identified at the time we are completing the report, the process should be stopped and the client consulted on how to proceed. I think those cases are rare.

In the case where we thought it was a relatively well-defined condition with a straightforward fix, and the borrowers did something more, then it wasn't completed as per the hypothetical and all bets are off. The property may need to be re-appraised.
Personally, I wouldn't worry about these types of situations and deal with them on a case-by-case basis.

 

[Tim The Enchanter]

for example if i called for a roof repair and they replaced the entire roof, gutters and downspouts

Please comment on the adjustment or lack thereof for the gutters and downspouts.

 

[djd09]

I haven't made a deck adjustment in 19 years.